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Moving forward with steady growth

South Indian Bank (SIB), is a private sector bank headquartered in Kerala. The bank has 955 branches, with majority of them in South India. Currently, the bank has a loan book size of Rs.84,714cr and a deposit base of Rs.105,451cr.

* In Q2FY25, the bank reports a 11%YoY growth in interest income to Rs. 2354.7cr, driven by 10.5%YoY growth in interest from loans.

* Advances increased by 13% YoY during Q2FY25, driven by strong disbursements in personal loan book. Moreover, the corporate and personal loan books reported a 22.2% YoY and 22.9% YoY, growth, respectively.

* PAT grew by 18.2%YoY, aided by strong growth in fee income and lower provisions. Additionally, NIM stabilized at 3.2% as stress from the cost of deposits was passed on. • Asset quality improved, with GNPA/NNPA at 4.4%/1.3%. The Provision Coverage Ratio (PCR) increased to 80.7% compared to 77.8% in Q2FY24.

* With stress from legacy books decreasing, the focus now shifts to profitability. We expect the bank to deliver ~1% ROA in the medium term.

Outlook & Valuation

Under the new management, SIB has been realigning their balance sheet with quality lending and an improved CASA mix. The new book has seen higher yields with low slippages. We expect credit growth of 12% during FY25-26. As the percentage of new book increases, ROE is expected to be ~13% by FY26. As a result, we remain optimistic about the company’s long-term growth and reiterate our Accumulate rating. However, since a moderation in advance growth is anticipated, we revise our target price to Rs.27 based on 0.63x FY26E BVPS.

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SEBI Registration Number: INH200000345